The first half of 2020 has been full of unprecedented events. The rapid spread of coronavirus paralyzed markets and brought about a global economic turmoil. The COVID-19 pandemic notoriously disrupted the way people lived and disabled a healthy economic cycle. As a result, it drastically affected the global financial market. The financial charts clearly reflect the impact of the pandemic.
Around the world, investor confidence in equities and risk assets has declined to cause traditional markets to face a major downturn. Unsurprisingly, the cryptocurrency market was not an exemption. As uncertainty continues to linger, the crypto market performance proved that it was not immune to the strong force pulling various trading markets globally.
Crypto Black Thursday: The Market Meltdown
Before the COVID-19 was officially announced by the World Health Organization (WHO) as a pandemic, crypto analysts had been optimistic about the health of the crypto market. In January 2020, the Bitcoin price had closed at around $10,000 and was up over 29% in January ー BTC’s best performance for that specific month since 2013.
Around February to March, an uncontrollable and rapid rise in COVID cases occurred. This forced governments to implement strict preventive measures and quarantine. Due to the disruption, on March 12, the cryptocurrency market experienced a staggering 40% plummet following a global sell-off in stocks — an event coined as the Crypto Black Thursday. The market capitalization or the total value of the entire cryptocurrency market plummeted around $93.5 billion just within 24 hours.
Bitcoin greatly affected this overall market crash when it recorded its steepest price dive in 7 years. Based on CoinGecko, BTC price started at $221.6 billion and closed trading at $159.6 billion on March 12. While on March 13, BTC price plunged further around $4,000 in value after starting the week above $9,000. In just two days, BTC has plunged 30% in price, slashing more than half of its value.
As Bitcoin fell to its lowest in March, several altcoins and stablecoins have gained profits. Tether USD (USDT) outstandingly almost doubled its market capitalization in the first quarter. At the same time, Ethereum (+3%), Bitcoin Cash (+7), Tezos (+19), Chainlink (+28), and Dash (59%) progressed against Bitcoin. During this time, Bitcoin’s dominance over other digital currencies also dropped by 3.5%.
Cryptocurrencies Rally Amid Pandemic
When Bitcoin dropped to its lowest at around $3,600, many crypto investors took the opportunity and rushed in buying BTC on March 12. Due to the increase in demand, Bitcoin was able to regain its prowess as it slowly rose back to $6,800 on March 20, just within seven days. Remarkably, the price of Bitcoin recorded its strongest second-quarter performance in history following the Crypto Black Thursday event.
Despite the reckoning situation, the cryptocurrency market has been outstanding than the traditional stock market. Coinbase, a major cryptocurrency exchange, has confirmed in a statement: “Since the drop, Bitcoin and the broad cryptocurrency ecosystem has rallied while equities have continued to drop. Coinbase customers, in particular, exemplified this buying behavior during the drop and thereafter.”
According to the report of CNBC, the Dow Jones Industrial Average, a credible benchmark index of 30 giant companies, fell more than 2,000 points last March, recording its largest drop in history. At the rate of 9.99%, it was seen as the worst drop since the 1987 “Black Monday” market crash.
The massive selling also affected the markets in the east when Japan, South Korea, and Hong Kong saw heavy stock market losses. Meanwhile, the S&P 500 Airlines Industry Index has experienced a more dramatic decline more than after the 9/11 terrorist attack in 2011. When it comes to cryptocurrency, the market liquidation was temporary as it quickly bounced back. More so, beating the commodities oil trade market, which trade price went negative.
Cryptocurrency: A Safe Haven?
Due to the rallying cryptocurrency market amidst the sinking traditional markets, many crypto enthusiasts, including analysts, have questioned the narrative supported by crypto advocates ー the idea of crypto being a safeguard against economic uncertainties.
Many also argued its ability to offer protection during challenging economic times as its price has been on par with risk assets like equities and stocks. And in some periods, Bitcoin, along with altcoins, performed even worse than other financial markets.
Bitcoin’s price drop made it evident that cryptocurrency may not be in that state of utopia yet.
Chris Bendiksen, head of CoinShares said:
While many in the Bitcoin industry have been hailing Bitcoin as a new safe haven, at this point it seems clear that proponents of this status have probably gotten a bit ahead of themselves.
Bendiksen further clarifies that this does not mean that Bitcoin is somehow forever barred from attaining such status. As for him, “it seems clear that this status has yet to be established.”
Though black swan events and virus outbreaks have always existed and appeared every now and then, COVID-19 may be the most impactful pandemic that occurred during the digital economy. Cryptocurrency heavily submerged in the digital stream also proved to withstand the unstable market conditions and has shown a relative increase as it approached its third halving season.
Bitcoin Halving Impacts the Market
On May 21, at about 3:21 P.M EST, Bitcoin officially reached its third mining rewards halving. The bitcoin halving is a pre-scheduled technical adjustment of the network that will divide the mining reward in half. This halving event also affects Bitcoin’s inflation rate and the rate at which new bitcoins enter circulation.
After the mid-March market plunge, the Bitcoin Halving event may be one of the most talked-about events in the crypto industry for 2020. As the two previous Bitcoin halvings eventually led to Bitcoin’s price hike, many crypto analysts and enthusiasts debated over the impact of the Bitcoin halving event on price and mining.
During the first halving in November of 2012, BTC grew from about $11 to nearly $1,150 in price. While in July 2016, during the second halving, Bitcoin’s price was about $650. Notably, by December 2017, Bitcoin’s price had been record-high at $20,000. Then, the price fell over the course of a year from this peak down to $3,200. Yet, this value is still nearly 400% higher than BTC’s price in the second pre-halving.
The correlation of the halving and price change can be interpreted as halving drives demand due to the constraints on supply. The hash rate is an indicator worth watching around a halving period. In this case, this chart visualizes the miners’ behavior when their incentives are decreased.
During the second halving event in 2016, there was no significant drop seen in the hash rate. In fact, the hash rate has stabilized immediately in post-halving despite the loss in mining profitability.
By looking at the chart of the Bitcoin network’s hash rate, a significant dive in the few days can be easily observed after the third halving took place. There was a nearly 30% drop in the overall network hash rate after the recent halving. Based on Nasdaq’s report, the drop happened based on the decision of numerous miners. They discerned that actively participating would no longer be worth the heavy electricity consumption. Therefore, ending their BTC mining operations.
The third Bitcoin halving turns out to be an insignificant event for Bitcoin’s price. However, it has gravely affected mining farms and miners. Inefficient miners and small-scale businesses shut down due to incompetency and major drop in revenues.
On a positive note, the Bitcoin network hash rate has stabilized following a downturn after the halving. Despite its highs and lows, Bitcoin’s price kept grounded above $6000. It displayed a better performance than precious metals in the global market.
Read Also: Bitcoin Price Outlook After Historic Halving
Bitcoin: Digital Gold Outperforms Gold
Tagged as ‘digital gold,’ investors regarded Bitcoin as a safe haven asset to hedge funds when markets are facing turmoil. As per Ryan Watkins, a research analyst at Messari, gold is the aspirational asset for bitcoin, as bitcoin and gold are both scarce commodities with its values based on its monetary premium.
As a decentralized asset, Bitcoin, along with other cryptocurrencies in observation, has shown extreme volatility. Bitcoin was never a conservative asset; it was more similar to a risk asset such as equity. Despite its volatile nature, Bitcoin slightly stood up to be a safer asset amid the pandemic. It outperformed the price of gold along with other precious metals in the first half of 2020.
According to NASDAQ.com, Bitcoin showed its luster by rallying more than 27% against average returns from precious metals like gold, silver, and platinum. Gold underperformed bitcoin by nearly 11% points despite gaining 16% in the first half of 2020 and making eight-year highs in late June.
Cryptocurrency: A Maturing Independent Market
Despite the erratic price movements and another deep dive in BTC price in May, the crypto market continues to thrive during the turbulent economic crisis. This shows immunity to withstand any black swan event in the future. In late April, bitcoin price crossed over $8000, two months after the significant cryptocurrency market slump in March.
According to Bloomberg senior analyst Mike McGlon,
Bitcoin (BTC) staying above $8,000 is a sign of increasing momentum and detachment from the stock market beta-pull.
In June 2020, Bloomberg released Bloomberg Crypto Outlook. This in-depth financial report compared the Bitcoin market with real-world financial markets like stocks, gold, and other commodities. The report has shown sustainable growth for the overall crypto market based on historical patterns and chart analysis.
The expert forecast was based on the patterns observed in 2016. In this forecast, the analysis considered the returns to its previous peak, returns when BTC supply was halved, and returns in the third year after a significant peak.
After 2014’s 60% decline at the end of 2016, the crypto matched the 2013 peak. Bloomberg analysts depicted Bitcoin marking time for a third year following the parabolic 2017 rally. Looking into four years later, the second year after the almost 75% decline in 2018, Bitcoin can rally towards $20,000 this year ー that is if the market aligns itself to the 2016 trend.